Cryptocurrency Mining Explained
Cryptocurrency Mining is the conducted process of validating electronic currency exchanges and adding them into a public record and the virtual currency (the Blockchain) for the digital currency (the coin) to be traded in for transaction fees and other digital currency as in the case of Monero. The mining procedure is highly computationally intensive and thus will use considerable and expensive amounts of electrical power and processing time. This high price is actually a function of the speed with which information needs to be processed during the collection and validation of such data.
The term ‘crypto currencies’ refers to any digital units that are traded and stored by means of this mechanism. In the case of the Monero, this entity is also kept secure and protected by the features of a decentralized ledger system, called the blockchain. The main purpose of this ledger system is to permit for the transparent transfer of monetary payments in the form of coins. The use of this technology enables users to transact without having to rely on payment rails such as PayPal or Credit Cards. This feature further encourages miners to continue with their jobs, whilst at the same time, improving the speed with which transactions are processed.
There are two types of Cryptocurrency Mining – Proof of Work and Proof of Stake. In the Proof of Work Cryptocurrency Mining, a set of cryptographic algorithms is used to verify the integrity of the ledger and prevent the miners from achieving an unfair advantage. In the Proof of Stake Mining Cryptocurrency Mining, less hash power is used as the miners stake assets or create future blocks of transactions using their accumulated resources. The proof-of-stake system is less risky than the proof-of-work system and therefore more lucrative to the miners who participate in it.
Another approach to this form of economics is called Address Generation. In this approach, a dynamically generated “address” of the transactions is generated using a 64-digit hexadecimal number. The transaction fee is charged to cover the expenses.
The University Policy affects the way in which Cryptocurrency Mining is conducted within the university. For instance, the U-M Students’ Association sets the guidelines and by-laws for this form of economy. The policies specify that the miners who participate in the Cryptocurrency Mining will need to adhere to a set of principles that include fairness, transparency, environmental responsibility, and innovation. The association also requires each member of the university community to publicly commit to fair practices when utilizing u-m resources. The policies also outline a procedure for responding to complaints that may arise.
By contrast, the Mining Policies of certain universities may not directly address Cryptocurrency Mining. However, these policies may indirectly affect how Cryptocurrency Mining is conducted on campus. For instance, the University of Michigan’s policies require that miners follow “business-as-usual” procedures when using u-m resources. The university policy specifies that members of the university community must take reasonable action to protect the environment and promote sustainability. Specifically, this includes making sure that new hires only conduct digital currency transactions while following the same procedures as others who are employed by the university.
As previously stated, most miners follow the business-as-usual methodology. This is in stark contrast to the decentralized model adopted by some professional miners. In this form of mining, miners decide what percentage of the reward they wish to receive. They then split up this portion amongst themselves, depending upon their own personal interests. This form of computing does not allow all of the mined reward to be awarded to one person or group. Instead, the larger number of individuals that each contribute to the pool, the more likely it is that a smaller percentage of the total reward will be awarded to any one person or group.
The decentralized model also requires additional security measures to ensure that miners actually are mining and not just participating in an exercise that does not require investment of time or money. The way this system of computing works, it is easy for someone to attack the network by flooding it with junk transactions in order to “mine.” By flooding an activity, this person dilutes the effects of the transaction as a whole and makes it harder for other users to transact. To mitigate this problem, some professional miners employ what are known as Proof-of-Stake protocols to ensure that the network remains sustainable and viable.